How is property, plant and equipment accounted for under IFRS for SMEs Section 17?

Under IFRS for SMEs Section 17 — Property, Plant and Equipment, an entity recognises a tangible asset used in production, supply, rental, or administration at cost, then carries it using the cost model only, depreciating it systematically over its useful life — the revaluation model available under full IAS 16 is explicitly prohibited. - Recognition criteria (17.4): An item of PPE is recognised when it is probable that future economic benefits will flow to the entity and its cost can be measured reliably. Spare parts and servicing equipment qualify as PPE when they meet this threshold; otherwise they are expensed. - Initial measurement at cost (17.9–17.10): Cost comprises purchase price (net of trade discounts), directly attributable costs to bring the asset to its location and condition, and the initial estimate of decommissioning/restoration obligations. Borrowing costs are expensed as incurred under IFRS for SMEs — the capitalisation option in IAS 23 does not apply (Section 25.2). - Subsequent measurement — cost model only (17.15): After recognition, assets are carried at cost less accumulated depreciation and accumulated impairment losses. The revaluation model is not permitted, which simplifies bookkeeping but can understate asset values in high-inflation environments. - Depreciation (17.16–17.22): Each significant component with a different useful life must be depreciated separately (component approach). The depreciable amount is cost less residual value. Acceptable methods include straight-line, diminishing balance, and units-of-production — whichever best reflects the pattern of consumption of economic benefits. Depreciation begins when the asset is available for use and ceases at the earlier of held-for-sale classification or derecognition.

How does the decommissioning provision under IFRS for SMEs Section 17 interact with the unwinding of discount under Section 11, and what are the journal entries over the asset's life?

- Impairment (17.24): Section 17 cross-references Section 27 (Impairment of Assets) for indicators and measurement. An impairment loss equals the excess of carrying amount over recoverable amount (higher of fair value less costs to sell and value in use), recognised immediately in profit or loss. - Derecognition (17.27–17.28): The carrying amount is removed on disposal or when no future economic benefits are expected. The gain or loss (proceeds minus carrying amount) is recognised in profit or loss, not as revenue. A small manufacturer purchases a production machine for $120,000 (including $2,000 delivery and $3,000 installation). Estimated residual value is $5,000; useful life is 10 years, straight-line. A decommissioning provision of $4,000 (present value) is also required. | Account | Dr ($) | Cr ($) | |---|---|---| | Property, Plant & Equipment | 129,000 | | | Accounts Payable / Cash | | 125,000 | | Decommissioning Provision | | 4,000 | Cost = $120,000 + $4,000 provision = $124,000 depreciable base before residual value. Wait — total cost = $125,000 + $4,000 = $129,000; residual value $5,000; depreciable amount = $124,000.

When an SME transitions from local GAAP to IFRS for SMEs, what are the practical expedients available for PPE on the date of transition under Section 35?

Annual depreciation charge ($124,000 ÷ 10 = $12,400): | Account | Dr ($) | Cr ($) | |---|---|---| | Depreciation Expense | 12,400 | | | Accumulated Depreciation — PPE | | 12,400 | After year 3, carrying amount = $129,000 − (3 × $12,400) = $91,800. If an impairment indicator exists and recoverable amount is assessed at $80,000, an impairment loss of $11,800 is charged to profit or loss immediately (Section 27). - Applying the revaluation model by analogy with IAS 16: Some preparers familiar with full IFRS mistakenly revalue PPE upward. Section 17.15 is unambiguous — only cost model is permitted. Auditors will require a write-back and may raise a qualification. - Ignoring the component approach: Treating an asset as a single unit when it has parts with materially different useful lives (e.g., aircraft body vs. engines) overstates early-period profit and distorts depreciation patterns. Section 17.16 explicitly requires component depreciation where significant.

How should an SME account for a government grant received to purchase PPE — does Section 24 require the deduction-from-asset method or the deferred income approach?

- Capitalising borrowing costs: Entities transitioning from local GAAP that previously capitalised interest often continue to do so under IFRS for SMEs. Section 25.2 mandates expensing all borrowing costs — capitalisation is not an allowed alternative, unlike full IFRS (IAS 23). - Section 17.4 — Recognition criteria for PPE (probable economic benefits + reliable measurement) - Section 17.9–17.10 — Components of cost at initial recognition, including decommissioning estimates - Section 17.15 — Cost model as the only permitted subsequent measurement basis - Section 17.16–17.22 — Depreciation method, component approach, useful life review - Section 17.27–17.28 — Derecognition and gain/loss calculation - Section 25.2 — Borrowing costs expensed as incurred (directly impacts PPE cost)

IFRS for SMEs Section 17 — Property, Plant and Equipment

IFRS for SMEs Section 17 — Core Rule

Under IFRS for SMEs Section 17 — Property, Plant and Equipment, an entity recognises a tangible asset used in production, supply, rental, or administration at cost, then carries it using the cost model only, depreciating it systematically over its useful life — the revaluation model available under full IAS 16 is explicitly prohibited.

How IFRS for SMEs Section 17 Works

Recognition criteria (17.4): An item of PPE is recognised when it is probable that future economic benefits will flow to the entity and its cost can be measured reliably. Spare parts and servicing equipment qualify as PPE when they meet this threshold; otherwise they are expensed.

Initial measurement at cost (17.9–17.10): Cost comprises purchase price (net of trade discounts), directly attributable costs to bring the asset to its location and condition, and the initial estimate of decommissioning/restoration obligations. Borrowing costs are expensed as incurred under IFRS for SMEs — the capitalisation option in IAS 23 does not apply (Section 25.2).

Subsequent measurement — cost model only (17.15): After recognition, assets are carried at cost less accumulated depreciation and accumulated impairment losses. The revaluation model is not permitted, which simplifies bookkeeping but can understate asset values in high-inflation environments.

Depreciation (17.16–17.22): Each significant component with a different useful life must be depreciated separately (component approach). The depreciable amount is cost less residual value. Acceptable methods include straight-line, diminishing balance, and units-of-production — whichever best reflects the pattern of consumption of economic benefits. Depreciation begins when the asset is available for use and ceases at the earlier of held-for-sale classification or derecognition.

Impairment (17.24): Section 17 cross-references Section 27 (Impairment of Assets) for indicators and measurement. An impairment loss equals the excess of carrying amount over recoverable amount (higher of fair value less costs to sell and value in use), recognised immediately in profit or loss.

Derecognition (17.27–17.28): The carrying amount is removed on disposal or when no future economic benefits are expected. The gain or loss (proceeds minus carrying amount) is recognised in profit or loss, not as revenue.

IFRS for SMEs Section 17 — Practical Example

A small manufacturer purchases a production machine for $120,000 (including $2,000 delivery and $3,000 installation). Estimated residual value is $5,000; useful life is 10 years, straight-line. A decommissioning provision of $4,000 (present value) is also required.

Initial recognition

Account	Dr ($)	Cr ($)
Property, Plant & Equipment	129,000
Accounts Payable / Cash		125,000
Decommissioning Provision		4,000

Cost = $120,000 + $4,000 provision = $124,000 depreciable base before residual value. Wait — total cost = $125,000 + $4,000 = $129,000; residual value $5,000; depreciable amount = $124,000.

Annual depreciation charge ($124,000 ÷ 10 = $12,400)

Account	Dr ($)	Cr ($)
Depreciation Expense	12,400
Accumulated Depreciation — PPE		12,400

After year 3, carrying amount = $129,000 − (3 × $12,400) = $91,800. If an impairment indicator exists and recoverable amount is assessed at $80,000, an impairment loss of $11,800 is charged to profit or loss immediately (Section 27).

IFRS for SMEs Section 17 — Common Pitfalls

Applying the revaluation model by analogy with IAS 16: Some preparers familiar with full IFRS mistakenly revalue PPE upward. Section 17.15 is unambiguous — only cost model is permitted. Auditors will require a write-back and may raise a qualification.

Ignoring the component approach: Treating an asset as a single unit when it has parts with materially different useful lives (e.g., aircraft body vs. engines) overstates early-period profit and distorts depreciation patterns. Section 17.16 explicitly requires component depreciation where significant.

Capitalising borrowing costs: Entities transitioning from local GAAP that previously capitalised interest often continue to do so under IFRS for SMEs. Section 25.2 mandates expensing all borrowing costs — capitalisation is not an allowed alternative, unlike full IFRS (IAS 23).

IFRS for SMEs Section 17 — Key Paragraphs

Section 17.4 — Recognition criteria for PPE (probable economic benefits + reliable measurement)
Section 17.9–17.10 — Components of cost at initial recognition, including decommissioning estimates
Section 17.15 — Cost model as the only permitted subsequent measurement basis
Section 17.16–17.22 — Depreciation method, component approach, useful life review
Section 17.27–17.28 — Derecognition and gain/loss calculation
Section 25.2 — Borrowing costs expensed as incurred (directly impacts PPE cost)